Standing Committee B

[Mr. Nigel Beard in the Chair]

Enterprise Bill

Clause 20 - Duty to make references in relation to completed mergers

Nigel Waterson: I beg to move amendment No. 63, in page 10, line 30, leave out 'shall' and insert 'may at its discretion'.

Nigel Beard: With this it will be convenient to discuss amendment No. 33, in page 10, line 30, after '(3)', insert 'have a discretion to' and amendment No. 64, in page 19, line 11, leave out 'shall' and insert 'may at its discretion'.

Nigel Waterson: We now take a spectacular backwards leap to clause 20 and, as the excitement mounts, move to mergers. We have a fair bit to say on the groups of amendments, and the clause could be heavily amended. It is one of the most important clauses, and many of the points raised in the amendments are later repeated. Therefore, if progress appears to be slow, it is in a good cause, and will save time later in the clause. I should also like to put down a marker—subject to your total discretion, Mr. Beard—that the clause merits a substantial stand part debate, after its amendments, which raise narrow issues, have been debated. The clause is key.
 We have three amendments in the group; amendment No. 64 is an amendment to clause 31, but it echoes issues that arise in clause 10. They would give the Office of Fair Trading the discretion, rather than the obligation, to make a reference to the Competition Commission in relation to both completed and anticipated mergers, the provisions for which mirror one another. 
 There is no politics in the clause. The proposals have been widely consulted on, trailed and discussed. It is fair to say that the principles involved in changes to the mergers and competition regime are broadly supported by the whole gamut of organisations, and by Opposition Members. Points of detail about how the changes will work in practice have been raised by people such as the CBI, and it is our duty to bring them to the attention of the Committee and the Government. There should be more light than heat—famous last words, perhaps—on this part of the Bill. 
 Under the Fair Trading Act 1973, the Secretary of State has a discretion, acting on the advice of the Director General of Fair Trading, over whether to refer mergers. There is a general acceptance that the tripartite structure has been creaking in recent years and that it needs re-examining. Clause 20 proposes the requirement that a reference is to be made in the cases of completed and proposed mergers, except in certain circumstances, which we will debate later. 
 The balance will shift from a discretion to an obligation on the OFT to consider mergers. We, and the business organisations, say that that will lead, in effect, to obligatory pre-clearance for mergers. At the moment, it is a useful and helpful procedure for mergers to be pre-cleared because it saves much cost and anguish later, but it is at the discretion of the parties. We are puzzled as to the reason for the shift. The amendment is probing because we are keen to hear why the Government want to shift the balance. 
 This provision is all the more strange when contrasted with market investigations under clause 123, where a discretion is conferred. We think that, if clause 20 goes through unamended, it will impose extra burdens on industry and that companies will be much less willing to take a chance on a merger. They will, from an abundance of caution—to use a lawyer's phrase—refer mergers for pre-clearance as a matter of routine. That will have two effects. One, as I have said, will be the burdens placed on industry and the other will be the extra burdens on the OFT. 
 Although the OFT will be geared up in terms of resources and staffing, it will suddenly get a great tranche of exciting new powers, duties and, as we debated at some length, ''functions''; that seems to be some kind of interim expression. If it suddenly finds that every single anticipated or actual merger is crossing its desk as a matter of practice, I wonder whether it will be able to cope. 
 The amendments are designed to probe the thinking behind a significant move from the current situation. We think that that move will bring extra burdens to business and to the OFT. We would like the Under-Secretary to explain the reasoning behind it, which, for all we know, might be eminently sensible and well thought through.

Vincent Cable: I would like to say a few words about the amendment, to which I attached my name. Like the hon. Member for Eastbourne (Mr. Waterson), I was simply curious about why that language had been used. The Government's intentions here may well be very sensible, but it is important to be clear about them. Given that the whole purpose of the legislation is to give the OFT and the competition authorities greater independence and discretion in making their judgments, it seemed odd to circumscribe them in that way.
 I have intervened to pursue the Government a little further on their intentions on merger activity in general. A discussion on Second Reading puzzled me a little. I had spoken to compliment Ministers for having introduced legislation that seemed, on the face of it—certainly in the language of this clause and some others—to have the general effect of slowing down merger activity. That seemed basically right. Much business and economic literature suggests that mergers are often unproductive and damaging, are unhelpful to the shareholders of the firms making the takeover and often have widespread negative economic consequences. 
 It seemed to me that if the effect of legislation was to throw sand at merger activity, it might be desirable 
 and that the only people to be upset by it would be those in the City who earn fee income from merger and takeover activity and executives with stock options who can currently take advantage of big fluctuations in share prices. I felt that if the legislation were to slow down merger activity, or make companies think twice about it, that would be desirable. 
 The Under-Secretary, however, in her reply to me, specifically made a point of giving reassurance—not to me, but perhaps to others—that the legislation would not have any effect on the amount of mergers taking place. I was puzzled by that and by why the Under-Secretary felt it necessary to decline the compliment that I had paid her through her legislation. 
 The hon. Member for Eastbourne has done a useful service in teasing out from the outset the purpose of the language. Is it intended, as I hope, to introduce a more cautionary note before companies embark on merger activity, or is there some other reason? As the hon. Gentleman said, it is purely a probing amendment. We are interested in knowing from what direction the Government are coming at the problem.

Jonathan Djanogly: I back up the comments made by my hon. Friend the Member for Eastbourne. It cannot be assumed that the only exclusions that will always be relevant to subsection (1) are those set out in subsection (2). Other situations may be relevant or may become relevant. Whichever way one looks at it, there is always going to be a subjective element in the way in which subsection (2) is interpreted, and therefore other issues could come up. The effect of a merger will always need to be reviewed on a case-by-case basis, looking at who may be affected and who may be helped by the proposals. That needs to be examined in the context of those issues' relevance to competition as a whole.
 The OFT is, of course, going to be forced to make a reference unless subsection (2) comes into effect. As the hon. Member for Twickenham (Dr. Cable) rightly said, that could lead to a waste of taxpayers' money, let alone shareholders' money, through unnecessary advisers' costs. Wider discretion than is currently being suggested should be given. We should also keep in mind that, over the years, different Secretaries of State have interpreted the existing provisions in different ways. I fully support the idea of de-politicising the concept of merger activity. On the other hand, it is not always a political issue because priorities and the way in which things are looked at can change over time. To that extent, I support the amendment, which identifies that and attempts to make the situation more adaptable.

Ken Purchase: I wish to make a short intervention on the question of whether the OFT ''shall make a reference''. The exclusions are very comprehensive, and narrow the opportunity for the OFT to make such a reference. There may be circumstances that, while falling foul of those exclusions, would, in the minds of the members or the director of the OFT, suggest that a reference ought to be made.
 I agree with the hon. Member for Twickenham that often the only beneficiaries of what not too long ago we used to call merger madness were the fee takers from the City firms of accountants and solicitors. Others who know the west midlands will share my view that the beginning of the end for the Goodyear plant in Wolverhampton was the attempt by the Goldsmith empire to take over the Goodyear company. Ten or 15 years ago, it cost Goodyear £60 million to ward off that takeover bid. 
 There is a view, which I regard as perverse, in the City that takeover activity keeps managers on their toes, but the overall effect has been unhelpful to British industry, and particularly productive industry. Rather than widening the exclusions, the idea of using some force—the OFT ''shall make a reference''—is right. I should not like to see that narrowed in any way.

Mark Field: I appreciate that we shall come back to some of the larger-scale issues relating to clause 20 in the stand part debate. However, I should be interested to receive some guidance from the Under-Secretary on my concern that much has been made of part 3 of the Bill in some way removing Ministers from the running of the merger regime. I am greatly concerned that potentially quite of lot of behind the scenes pressure will be brought to bear.
 I do not share the view expressed by my hon. Friend the Member for Huntingdon (Mr. Djanogly), that politicians should necessarily be taken out of the merger arena. In part, those are political decisions and one has to accept that. Business and industry quite understandably look for clarity, consistency and some sort of predictability, but as political fortunes and ideas inevitably ebb and flow, the idea of there being predictability from decade to decade is a fallacious one. 
 However, my concern is that the OFT does not have a discretion because a statutory rule is in place. Each amendment makes reference to the fact that the OFT ''shall'' rather than may have a discretion to act in a certain way, which may result in even more political pressure behind the scenes. I am interested to know what the Under-Secretary has to say about that. Once the OFT is effectively no more than a rubber stamp, it will presumably be at the next stage when political pressure comes into play. 
 We shall discuss the whole issue in the broader surrounds of clause 20 and others, but with that concern in mind, I would be interested to hear what the Under-Secretary has to say.

Andrew Lansley: It is a pleasure to join the discussion of the Committee at this point. I do not want to detain the Committee for very long because, as my hon. Friends and other hon. Members have made clear, there is a connection between what we have to discuss now, and what is to come in relation to clause 20.
 If we do not later consider amendments relating to the criteria that the OFT were to apply in 
 circumstances where it would have a requirement to make a reference, and no discretion whether or not to do so, the issue of the requirement on the OFT will be given a particular weight. At this stage, we have to consider whether it is right to say, as my hon. Friend the Member for Huntingdon was contemplating, that there are no circumstances under which it would be appropriate for the OFT not to make a reference, even though it were satisfied that the current criteria set out in subsequent subsections would be satisfied. That is connected with the issue of the use of a substantial lessening of competition test. 
 The Government, in amendment No. 176, are trying to make their expression of substantial lessening of competition even clearer. There is, as we know from amendments such as No. 214, an arguable proposition that we need to think about other ways in which the absence of competition may not necessarily lead, in the OFT's view, to a requirement to make a reference. 
 It is conceivable that in the changes that are yet to come to the European Community's merger regulation, we would want discretion to allow the OFT to take account of those criteria in future decisions over references and incorporate them into its guidance, even though they may not be wholly on all fours with the structure of the statute. We are not trying to draft the clause in the same terms as the EC legislation, following how the European Commission would apply mergers policy, and we cannot know precisely how the Commission will do so in the future. It therefore seems all the more appropriate to leave ourselves a bolthole. 
 If merger policy at a European level were to consist of something subtly different from the clause, which the Government may change over time, the OFT should have a competition test, in the absence of something as vague as has been applied by Ministers; a public interest test with a political emphasis. None the less, having accepted those basic principles, there are technical and economic features of certain merger applications that would lead the OFT to conclude that it should not be necessarily the subject of a reference. On that basis, it seems to me that my hon. Friend the Member for Eastbourne and the hon. Member for Twickenham have done a service by bringing the issue forward so that the Under-Secretary can explain why that should not be the case.

Melanie Johnson: The amendments relate to the obligations on the OFT when it becomes aware of a merger or plans for a merger. Although they relate to two different clauses in the Bill, they seek to achieve the same kind of effect. Therefore, I shall take them together, if I may, and answer hon. Members' points as I go along. There has been some misunderstanding and misinterpretation, so I will try to set the record straight.
 Amendment No. 63 would give the OFT discretion over whether to refer anticipated mergers for investigation by the Competition Commission. Amendment No. 33 is a variation on the drafting but would also have the effect of removing the OFT's duty to refer in such cases. Amendment No. 64 would 
 remove the parallel duty to refer in completed merger cases. In the light of hon. Members' remarks, it may be helpful if I set out why we think it is important to require the OFT to refer certain cases. 
 We are creating a new merger regime with a tighter focus on competition. By focusing intervention on safeguarding competition, we will ensure that the new regime is predictable, transparent and streamlined. I was glad to hear in some of the remarks that hon. Members are also keen to achieve that outcome. We are handing over responsibility for decisions to those with competition expertise, and we want the OFT to apply a competition-based test. Such a regime will give parties greater certainty of the criteria against which mergers are assessed and will contribute to predictability and transparency. 
 Broad discretion on whether to refer is appropriate under the Fair Trading Act 1973, under which decisions are taken against a broad public-interest test and lie in the hands of Ministers, who are accountable to Parliament for their actions. However, if there is a more focused test, such as the one that we propose of the substantial lessening of competition, and the decision lies in the hands of an independent body, there should be less discretion. I shall deal more with discretion in a moment. Moreover, it is desirable to ensure that decisions taken under the new regime are more predictable. Thus, we think it is sensible to set out as much as possible the criteria for reference. In that way, we can be confident that any competition concerns that cannot be dealt with effectively at stage one will be referred to the Competition Commission for a thorough investigation.

Mark Field: I should be interested to know why the Government believe that predictability is such a desirable goal.

Melanie Johnson: Predictability ensures that those who advise businesses and consider mergers are more likely to understand how the OFT and, ultimately, the Competition Commission may deal with matters. The aim is to provide predictability for business and not anyone else. I thought that that was understood in the remarks several hon. Members made about the proposal.

Ian Pearson: Those are the rules of the game.

Melanie Johnson: As my hon. Friend says from a sedentary position, it is much easier if one understands the rules of the game. Predictability is a key element of doing so.
 Clauses 20 and 31 set out clearly the circumstances under which the OFT should refer a completed or anticipated merger. The duty to refer is not unbending; specific provision has been made for instances in which it would be appropriate for the OFT to exercise some discretion. In particular, the OFT should be able to choose not to refer a merger if it believes that the market concerned is not of sufficient importance to merit a full stage two inquiry, or if it believes that customer benefits flowing from the merger outweigh the competition concerns. 
 We have also sought to ensure that the OFT will not refer if the case is being dealt with in another way. Examples include cases that fall under other regimes, such as mergers that qualify as concentrations under the European merger regulations. The OFT is also prevented from making a reference if it is seeking undertakings in lieu of reference from the parties, or if the case is the subject of an intervention notice because it raises public interest considerations that go beyond competition. Overall, we expect a similar number of mergers to be referred under the new regime as have been referred under the current regime. We do not anticipate that the targeted duty proposed will lead to an increase in references, and nor does the OFT. 
 I turn now to other points that hon. Members have made. First, on the question of the duty, we already expect a similar number of cases. That will provide greater security for business and the duty will ensure that the regime is applied even-handedly, which is another important element of predictability and understanding the rules. A merger is always a specific commercial decision, with a potential impact on the structure of the market. We need to look at the impact at that point, subject to sensible flexibility, of a decision not to refer. 
 Mention was made of the markets investigations. They are subject to a discretionary power of reference. They are not triggered by a specific transaction as in the case of a merger. I can tell the hon. Member for Twickenham that we will continue to pursue a neutral mergers policy. We believe that commercial decisions should be left up to business. The only check is to look at the competition impacts and part of the role of the duty is to reflect the switch from Ministers to the OFT, not to discourage mergers or to affect the numbers. 
 I was surprised by the remarks that the hon. Member for Cities of London and Westminster (Mr. Field) made about possible ministerial involvement or interference behind the scenes. The regime will operate transparently. There is no scope for political influence and none would be exercised. The duty and the specified exceptions ensure that. Leaving Ministers out simply reflects that the OFT is expert on this and it is important to deal with it in this way. The OFT does not have a rubber-stamping role. Its duty will involve economic assessment, as the Bill makes clear. 
 I turn now to the points made by the hon. Member for South Cambridgeshire (Mr. Lansley). The OFT will refer mergers. However—this point seems to have been missed—it will refer only where it believes that there has been a substantial lessening of competition. That is where the real discretion lies, and where the judgment must be exercised. We expect that that judgment will be exercised, largely as now, in line with the advice and information that has been published by the authorities. I hope that that clarifies hon. Members' concerns.

Nigel Waterson: I am grateful to the Under-Secretary for explaining at least some of the thinking behind the clause and the regime that is set out. We have teased the philosophy out of her; a similar number of
 references to the present number is envisaged. That will probably come as a surprise to the hon. Member for Twickenham, among others. She put it rather well when she suggested that there was some discretion, in a way, because it is quite difficult to see where the discretion lies. She set out the various headings, which are specific; the importance of the market, benefits to customers, separate regimes and undertakings in lieu of reference.
 That is fine. We will look at those more closely and we can certainly see the logic of that. We can see the argument for certainty but once one has established the criteria for not referring on the face of the Bill, the discretion that we are talking about, although important, is only within a narrow compass. It is unlikely to undermine the certainty that she is right to suggest business would like to see. It seems slightly odd not to give more discretion than is currently given in the legislation. 
 I do not accept that there is a significant philosophical difference between this matter and clause 123 on market investigations. The fact that an individual event triggers it—in other words, a deal or a merger—does not make any difference. These are similar provisions and it seems odd, within the philosophy of the Bill, that there is limited discretion in one case and more extensive discretion in the other. 
 The Under-Secretary did not deal with pre-clearances. Does she accept the view held not just by us, but by such bodies as the CBI, that companies thinking of a merger will now routinely clear it in advance simply because they think that the merger will be almost inevitably referred? The Under-Secretary is looking at me in a puzzled way. I may not be able to express the point comprehensibly, but I do not think that I can improve on what I have just said or what I said in my original remarks. The proposal will give the OFT a significantly increased work load and place a significant extra burden on business trying to pre-clear mergers.

Melanie Johnson: Why does the hon. Gentleman think that there may be more pre-clearance activity? I understand the point that he made but I do not understand why he made it.

Nigel Waterson: I hasten to say that it is not something that I thought of on my way into the Committee Room this morning; the point has been put to us by business, particularly the CBI. The CBI believes that if business realises that there is no real discretion for the OFT, apart from the areas that the Under-Secretary rightly touched on, mergers routinely will be investigated. A proportion of anticipated mergers are at present referred in advance, but that will now happen as a matter of routine; if it did not, companies might be caught out by what they will come to see as the automatic referral of mergers. The Under-Secretary should grapple with that concern.

Melanie Johnson: I would be delighted to grapple with it, but I am not sure that there is anything to grapple with. Guidance is given confidentially in advance in some circumstances; there will be scope for parties to seek such guidance in future. I do not anticipate any
 change in the scale of initial guidance sought. I do not know why the hon. Gentleman thinks that that will change. The fact is that neither he nor anyone else can have his cake and eat it. If we are to have predictability, there must be rules within which certain things will normally apply. Business is keen to have predictability and we have had extensive discussions with business, throughout 1999 and 2000, on all the mergers material in front of us this morning. There has been considerable support for the general thrust of the proposals. Predictability is a key component of that support and it will be ensured by rules of the kind with which the hon. Gentleman seems to have difficulties.

Nigel Waterson: I think that I shall give up because we are talking at cross-purposes. I do not disagree with the Under-Secretary about the need for certainty and predictability but we think that that small element of discretion should be returned to the authorities.

Jonathan Djanogly: Are we not discussing adaptability just as much as, if not more than, predictability? Circumstances may change and the legislation that we are now setting in stone should recognise that.

Nigel Waterson: My hon. Friend makes a good point. The law should not be set in concrete, although some predictability is obviously necessary. However, I was trying to get at a different issue; whether the rate of pre-clearances would go up significantly because of the provision. I have been unable to persuade the Minister that there is even a problem worthy of debate and, given that we have other issues on the clause and substantial points to make on the stand part debate, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 211, in page 10, line 33, leave out from 'result' to end of line 35 and insert—
'in the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

Nigel Beard: With this we may take the following amendments: No. 123, in page 10, line 35, at end insert 'or
(c) the creation of that situation has operated, or may be expected to operate, against the public interest.'.
 No. 217, in clause 31, page 19, line 15, leave out from 'result' to end of line 17 and insert— 
'in the creation or strengthening of a dominant position, as a result of which competition is likely to be significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 126, in clause 31, page 19, line 17, at end insert 'or 
(c) the creation of that situation has operated, or may be expected to operate, against the public interest.'.
 No. 128, in clause 33, page 20, line 20, at end insert 'or 
(c) the creation of that situation has operated, or may be expected to operate, against the public interest.'.
 No. 220, in clause 33, page 20, line 23, leave out from 'result' to end of line 25 and insert— 
'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 221, in clause 33, page 20, line 28, leave out from 'result' to end of line 30 and insert— 
'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 222, in clause 33, page 20, line 35, after 'preventing', insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 223, in clause 33, page 20, line 40, after 'preventing', insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 224, in clause 33, page 21, line 3, after 'practicable', insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 225, in clause 34, page 21, line 25, leave out from 'in' to end of line 27 and insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 129, in clause 34, page 21, line 27, at end insert 'or 
(c) the creation of that situation has operated, or may be expected to operate, against the public interest.'.
 No. 226, in clause 34, page 21, line 32, after 'preventing', insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 227, in clause 34, page 21, line 36, after 'preventing', insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 228, in clause 34, page 21, line 43, after 'practicable', insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 231, in clause 39, page 25, line 11, leave out from 'prevent' to end of line 12 and insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 232, in clause 39, page 25, line 14, leave out from 'from' to end of line 15 and insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 233, in clause 39, page 25, line 23, leave out from 'to' to end of line 24 and insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 235, in clause 42, page 28, line 34, leave out from 'in' to end of line 35 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 239, in clause 42, page 28, line 34, leave out from 'in' to end of line 35 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 240, in clause 43, page 29, line 27, leave out from first 'of' to 'the' in line 28 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 241, in clause 43, page 29, line 35, leave out from 'result' to end of line 36 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 242, in clause 43, page 30, line 1, leave out from 'result' to end of line 3 and insert— 
'in the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 243, in clause 43, page 30, line 7, leave out from first 'of' to end of line 10 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.
 No. 244, in clause 43, page 30, line 15, leave out from 'in' to end of line 17 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 245, in clause 45, page 31, line 26, leave out from 'in' to end of line 27 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 246, in clause 45, page 31, line 28, leave out from 'any' to 'concerned' in line 30 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 247, in clause 45, page 31, line 43, leave out from 'in' to end of line 45 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 248, in clause 45, page 32, line 1, leave out from 'any' to end of line 4 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 249, in clause 45, page 32, line 26, leave out from 'be' to 'it' in line 27 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 250, in clause 45, page 32, line 31, leave out from 'preventing' to end of line 34 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 251, in clause 45, page 32, line 36, leave out from 'preventing' to end of line 39 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 252, in clause 45, page 32, line 46, leave out from 'be)' to end of line 47 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 256, in clause 53, page 38, line 21, leave out 
'substantial lessening of competition'
 and insert— 
'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.
 No. 274, in clause 69, page 50, line 29, leave out 
'the substantial lessening of competition'
 and insert— 
'creating or strengthening a dominant position, as a result of which competition may have been significantly reduced'.
 No. 275, in clause 69, page 50, line 36, leave out 
'substantial lessening of competition and any adverse effects resulting from it'
 and insert— 
'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced'.

Nigel Waterson: I am almost overwhelmed by the size of my task, but it is not as bad as it looks. I have no responsibility for amendments Nos. 123, 126 and 128, which were tabled by the hard left of the Labour party, and I distance myself from them. In the tradition of the Committee, half of the Liberal Democrats may support them, with the other half vigorously opposing them.
 The proposal is about domination; that has perked up members on the Government Benches. The Government want to introduce a new test for determining whether a merger should be referred to the Competition Commission. The Fair Trading Act 1973 contained the public interest test, which has not stood the test of time. However, the changes in the Bill are more formal than real, in the sense that some parts of the public interest test have long since fallen into disuse. Lest I appear churlish—the last thing that I want to do—I should say that we welcome the change, as does almost everyone I have come across. It is time that the matter was formally put right and, as the CBI says, it should increase clarity, consistency and predictability in the mergers regime. 
 The competition test as such has, de facto, been applied for some time, based on the so-called Tebbit guidelines, with which my hon. Friend the Member for South Cambridgeshire is thoroughly familiar. He will probably speak about the matter at length in the stand part debate. It makes sense to enshrine the test in statute. 
 We are in more murky waters about the precise test to be applied. We have touched on the SLC test, which sounds a bit like a sandwich; it is, however, the substantial lessening of the competition standard, which is the test applied in the United States, Canada and Australia, and possibly in other places. We tabled these probing amendments to argue the case for the dominance test, which is more favoured by the CBI than the SLC test, because it is the standard for assessing mergers under the EC merger regulation. The SLC test would impose a more stringent standard for assessing the potential effects of mergers than exists at European Union level. 
 The question of principle is whether businesses operating in this country should face a stiffer test domestically than they would face under the European regime. We have discussed the matter in the context of cartels; that is another example of whether, by decision or simply by negligence, the Government are allowing the regime to drift apart from that in the EU. I have never been accused of being excessively communautaire in these matters, but if there is a regime in Europe that potentially applies to British companies and a regime in this country, where there is an overlap they should follow the same pattern.

Andrew Lansley: My hon. Friend may recall an issue that I raised on Second Reading. I do not know whether to dwell on my experiences in the mid–1980s, or on my experiences of serving on the Committee that considered the Competition Bill, which may be more immediately relevant. On many occasions in that Committee, Ministers not a million miles from the Department that the Under-Secretary represents here today said that we had to deliver the Bill precisely as it was drafted. They said that they could not even accept amendments intended to clarify the Bill, because the competition regime—in this case on the abuse of a dominant position, and anti-competitive practices—was expressed in the terms used by the Commission and in the European Community's competition regime.
 Even where the Commission had not determined what its regime should look like—for example, in relation to vertical agreements—we were not allowed to take a view, because we would have to fall in line with the European Community's competition regime in due course. My hon. Friend may share my confusion as to why Ministers now seek a different solution from the one applied by the European Commission.

Nigel Waterson: I am grateful for my hon. Friend's comment, which is based on significant experience, not least of serving on the Committee that considered the Competition Bill. I am sure that my hon. Friend has taken the opportunity to read the Hansard reports for the Committee's previous debates. There is a philosophical leap from what the Government were saying with regard to the 1998 Act and what they are saying now, particularly on cartels. At that time, the belief was that whatever we did, we should not be able to slide even a sheet of paper between the position on procedures in this country and those in the European Union. I hope that as we wear the Under-Secretary
 down, we will be able to tease out of her the philosophical background to the regime.
 For whatever reason, the Government seem to be taking a more relaxed view. We missed my hon. Friend's contributions on the criminalisation of cartels. However, he will see from Hansard that the Government seem impervious to the fact that the regime in this country and the regime in the European Union were going to move sharply apart, so much so that even officials, unnamed, in Brussels are expressing concerns that there will be less co-operation and exchange of information on cartels between the regimes. They are doing so because of their concerns about the possibility of people being subject to criminal sanctions in this country.

Tony McWalter: I am aware that there are other complications in that sector. However, I am sure that the hon. Gentleman will agree that the increasing tendency in farming to create mega-farms at the expense of small family farms is retrograde and reprehensible. I would not want a test of merger to be that we would not do anything until one farm was in a completely dominant position in, say, Hertfordshire. There is much to be said for having a stronger regime than the EU regime in these matters.

Nigel Waterson: I am not sure that the clause is aimed at farming. The Government's other policies have laid waste to agriculture far more than the Bill is likely to do. [Interruption.] Labour Members may scoff.

Melanie Johnson: Would the hon. Gentleman like to add BSE to his consideration of the impact on farming?

Nigel Waterson: I cannot see the point of the Under-Secretary's remark, unless she is suggesting that BSE was created and developed in 32 Smith Square. There are many clever people in central office, but their abilities do not extend that far.

Mark Field: On the narrow point about BSE—

Nigel Beard: Order. BSE has nothing to do with the clause.

Nigel Waterson: I am relieved to hear your ruling, Mr. Beard. Thursdays seem to be more fractious than Tuesdays, perhaps because the weekend is beckoning.

Tony McWalter: The hon. Gentleman has not addressed my point, which is that small businesses—I referred to farming business as only one example—might be much better protected by the SLC test than by the dominant market position test. Will the hon. Gentleman deal with that matter, as I feel that his party and mine should strongly agree on it?

Nigel Waterson: I am sorry if the hon. Gentleman feels that I did not do justice to his earlier intervention. We accept that the test will be less burdensome and the amendments reflect that. That is a point on behalf of business and industry. One could perhaps flip it around and say that it might protect small business less, but I do not accept that. Indeed, I doubt whether the position that the hon. Gentleman described could be tackled under the clause, even with a more
 restrictive wording. That is my honest opinion, but I shall reflect more on what he said. These are effectively probing amendments.
 I return to the issue of aligning the regime with Europe. The problem is not as acute as when we debated cartels, when revealed a sharper difficulty. It is curious, given the supine attitude of the Government to most things European, that while other member states and even applicant states have been aligning their own merger control provisions to the current dominance test, we seem to have acted differently. It is highly likely that the Commission will retain the dominance test as the standard to be applied in its merger control regime. If the Under-Secretary knows better, she will doubtless say so. 
 Ever since these reforms were floated back in 1999, it has been disputed whether the same advantages for harmonisation that applied under the Competition Act 1998 arise here. Let me quote from the CBI: 
''The demarcation line between domestic and EU mergers is sometimes not clear cut, particularly in more complex transactions. As a result it would be fairer and more sensible for companies operating across the European Union to have to comply with one standard as opposed to two differing ones.''
 We accept that argument. Any well-run business, particularly at senior management levels, will not spend all its time worrying about the mergers regime. Good and bad reasons exist for mergers. The hon. Member for Twickenham spoke about that and doubtless will again. Mergers can be good for the companies, the marketplace and consumers, as another part of the Bill recognises. 
 Clearly, the Government do not want to discourage mergers and the Under-Secretary conceded that they do not envisage a different level of references from the current one. Whether that will be achieved is a different matter, but the proposals are neutral from the standpoint of the proportion of mergers that will be investigated through these procedures. Many mergers are desirable, so we cannot have business and industry put to so much extra expense and burden. The hon. Member for Wolverhampton, North-East (Mr. Purchase) referred to a specific case of a few years ago in which significant costs were involved. We should not expect business and industry to be up to speed and in parallel on two regimes that are diverging in similar ways to cartels regimes, so I return to the philosophical issue. 
 As my hon. Friend the Member for South Cambridgeshire pointed out, in responding to the amendments, the Under-Secretary must come clean about why the Government's philosophy has shifted since my hon. Friend was debating the then Competition Bill in Committee in 1998. Why are the Government apparently no longer concerned—indeed, they are very relaxed—about our regime differing from that in Europe? There must be a reason for that. At least, I hope that there is; it would be more worrying if there were not. We should like to know what that reason is.

Harry Barnes: Some of the amendments stand in my name and those of my
 hon. Friends, whom some people might refer to as hon. comrades. The hon. Member for Eastbourne trailered these as hard-left amendments. In fact, as I said earlier, my position is neither hard nor soft left. My hon. Friend the Member for Wolverhampton, North-East described that as the ''Goldilocks'' tendency; neither too hard, nor too soft.
 The amendments and others that we shall reach later are interconnected. Amendment No. 124 would delete one provision to make way for the expansion and definitions in amendments Nos. 125 and 165. They are part and parcel of the public interest argument that I shall advance now, so I may not need to go over that ground again when we reach that group of amendments. 
 For reasons that I shall make more clear later, I call my group the Biwater amendments. These arise from experiences in my constituency to do with the Biwater plant as it was at Clay Cross. My worries about part 3 can be seen in my reaction to the views that an extreme supporter of part 3 expressed in a document that came into my hands. The British Bankers Association circulated to its members a document that states: 
''Following lobbying from a range of business and City institutions, the Enterprise Bill will introduce a number of major reforms to UK competition law, as well as changes to insolvency procedures.''
 The document then deals in detail with part 3 and the matters that we are considering. It goes on to say: 
''Obviously these proposals are extremely welcome and represent the culmination of what we have been seeking for some years with regard to UK merger policy, in terms of both financial services and other sectors of the economy. It is important, however, that members should take no premature action to jeopardise the proposals whilst they are still subject to Parliamentary scrutiny. In advance of Second Reading of the Bill, members are also urged to ensure that, in the event of being contacted by backbench MPs, no opinion is offered for the time being. Once Parliament has approved the proposals (largely a formality)''— 
our business seems to be beside the point— 
''which we are led to expect should be achieved by the summer, members may of course then comment freely!''
 The document says that part 3 will 
''remove Ministerial and Parliamentary control over mergers & acquisitions . . . leave decisions on M&A and other cases to the Regulatory authorities (principally the Office of Fair Trading) . . . replace the current 'public interest' test for assessing M&A and other cases solely with a 'competition-based' test . . . prevent trade unions (or MPs with trade union connections) from having any say in decisions on such matters.''
 Those matters concern me, and people within the trade union movement. The Financial Times of 10 April, the day of Second Reading, printed a letter from Ed Sweeney, the general secretary of Unifi, the finance trade union, in which he expressed concerns. He said: 
''the policy on mergers will be governed solely by the effect of a particular transaction on competition rather than, as at present, the effect on public interest (which, while emphasising effective competition, can also include the effects on employment, regional policy and so on). Ministers will have reserve powers to intervene only on those merger cases affecting national security/defence, plus other exceptional cases subject to parliamentary approval. Unifi's concern is that no consideration will be given to the 'social' implications of mergers. Unifi believes that the consequence of mergers do sometimes need to be considered beyond the 'economic' and that the proposed reforms do not allow a mechanism for that consideration.''
 My amendments would provide that the OFT take on board consideration of the public interest. A later amendment to clause 56 attempts to restore the public interest consideration to the Secretary of State. Ed Sweeney goes on: 
''Consideration should also be given as to whether the new 'super-complainant' procedure (that will enable certain consumer organisations to have the right to compel initial investigations by the Office of Fair Trading into specific markets) should be extended to other third parties.''
 That is similar to one of my earlier amendments, which put forward producer and not just consumer considerations. Amendment No. 122, which provoked a great deal of discussion about G.D.H. Cole, was flawed because a crucial stage in the Bill had been passed by the time it was introduced and I could put forward only a measure on producer references to consumer matters rather than matters that affected producers. However, there will be an opportunity later, maybe on Report, to correct that and to table the type of amendment that Ed Sweeney seeks. 
 The document of the British Bankers Association was sent to me anonymously with a note saying that I might be interested in it. I have made efforts to check whether it is genuine. I asked a researcher in the Library for his response to it. He said: 
''As I am sure you understand, it is difficult to comment without making direct enquiries. If it is a hoax, it seems an informed and fairly elaborate one. It uses the correct logo and details of the BBA; it provides a broadly accurate account of Part 3 of the Bill; and it has been precisely targeted in that this is an issue that concerns you.''

Nigel Waterson: My affection for the hon. Gentleman is in no way diminished by the black and white way in which he views political issues. Does he accept as a corollary of his proposal that a wicked Tory Government should listen to the blandishments of big business, banks and others and make political decisions, in their turn, about merger issues? That seems a fair deduction to make from his argument.

Harry Barnes: Decisions made under section 84 the 1973 Act, if fully implemented, are not made by Governments and by Ministers. Such decisions can be to make references to the Competition Commission to examine a matter. The likelihood of pressures being put on Ministers to consider things seems part of the duties in which they should be engaged and for which they should be accountable to Parliament. To say that things should be taken out of the hands of politicians is to say that things should be taken out of the hands of democratic processes. Obviously, politicians can manipulate and fiddle behind closed doors, but we should open up those procedures as much as possible and make people fully accountable. The interests of workers should have access to and feed into the political process through the type of avenues that are available for the public interest.
 Since the early 1980s, successive Secretaries of State have had a policy that references should be made to the Competition Commission only on competition grounds, not on public interest grounds. That seems to have been a wilful refusal to use the enabling measures contained in section 84 of the Fair Trading Act. It has had a disastrous effect in numerous cases, including 
 the Biwater case at Clay Cross in my constituency, which led to the entirely unnecessary loss of 700 jobs. 
 My amendments use the wording in section 84 of the 1973 Act, although at present it is a smaller measure that instigates the public interest provision, which is defined by later amendments. There is a need to go beyond the rather weak enabling measures in section 84 and to place a public interest duty upon Ministers and the OFT. We have to proceed one step at a time. The current step is to try to get us back at least to the possibilities that exist in the 1973 legislation. 
 I shall now deal with the relevance of the Biwater case to my amendments. On 4 September 2000 Saint-Gobain, acting through its British subsidiary Stanton plc, took over Biwater at Clay Cross works in my constituency. The acquisition was sanctioned by the OFT which, in its report to the Secretary of State, failed to mention that it knew that Saint-Gobain's intention in purchasing the plant and taking it over was to close down the works. That was revealed later. Within minutes of the takeover announcement it was announced that the closure would take place after a statutory minimum period of 90 days. 
 The works are now closed. Yet Biwater was an entirely viable operation. It had a thriving trade in pipe manufacturing and the sale of pipes for the distribution of water. It had growing orders with the increase in oil prices in the middle east. When it had full order books, 80 per cent. of its production went to export. If the Secretary of State or the OFT had acted on section 84 of the 1973 Act the Competition Commission would have had a clear case for preventing that closure. But all that happened was that the Secretary of State referred the matter back to the Office of Fair Trading for a second look. The OFT merely confirmed that it was acting on competition grounds, and that no reference would be made to the Competition Commission. After much dithering, that is still the Secretary of State's position. The first batch of redundancies had taken place on the Friday before he announced his decision to stay with the OFT recommendation on the Monday, supposedly after examining the details during the weekend. 
 It was clear to me from a conversation with John Vickers, the Director General of Fair Trading, that he believed that competition criteria were fulfilled as long as the consumer's ability to go the market and buy pipes could be reasonably guaranteed, whether they were produced in this country, or had to be imported from the rest of Saint-Gobain's pipe-manufacturing industry throughout the world. On 11 March, Saint-Gobain's advertisement stated that two thirds of European households, not to mention all of Brazil's, were supplied with water from Saint-Gobain pipes. It said that every year it made enough ductile iron piping to build a pipeline through the earth, and that their water systems equipped 80 world capitals. 
 Biwater was a competitor with the same sort of operation. Although Stanton plc and Stanton Works are in this country—Stanton Works is in my constituency—and they may have found easier avenues of production, production is directed towards the home, not the overseas, market. The 
 order book from the purchase of Biwater Clay Cross went overseas. That productive capacity is now exercised in Brazil and other countries. 
 The public interest provision provides for exports to be considered as a factor. Saint-Gobain has almost gone from the site, because Biwater still owns the land and buildings. There should be some serious consideration of an arrangement that exists throughout industry, where one company owns the land and buildings and another operates the firm. A firm in my constituency went into receivership. The major interest in the firm also had a major interest in the land and buildings under a separate company, which has made a fortune from houses built on that site.

Nigel Beard: Order. The hon. Gentleman is moving away from the purpose of the amendment.

Harry Barnes: That was a little detour.
 Adrian White will not tell anyone about his plans for the site. The 700 jobs, which were of great importance to the area, have gone. The great bulk of them—approximately 75 per cent.—were done by people living within a five-mile radius of the plant. I am by no means alone in pressing for public interest considerations. The amendments are not just the revenge of the ex-Biwater workers for the failure to consider their proposals properly. It is a genuine concern that applies over a wide area.

Ken Purchase: I understand and empathise with the idea of revenge and I realise that my hon. Friend speaks to the amendments in the spirit of incorporating into the Bill both the public interest, however it is defined, and the interests of employees in an enterprise that may be taken over or merged without a reference. However, does my hon. Friend share my concern that if such a public interest power were given to the OFT, no control whatever over its exercise would be possible? Does he not agree that a strengthening of trade unions is ultimately a better way of protecting the interests of workers such as those at Biwater than we could ever expect from the OFT or any other institution concerned primarily with the accumulation of capital and preoccupied only with shareholder interests?

Harry Barnes: I am all for developing the influence of trade unionism so that people can fight their corner. One way for trade unions to achieve their ends is to secure procedural agreements that are favourable to their position and allow them to secure better substantive agreements in the future. The various procedures and arrangements are relevant to our consideration of the Bill. Will there be some feed-in to the trade union movement either through the producer super-committee that I have suggested, or by providing an avenue of access to present views to the OFT or, as appears in a later amendment, to the Secretary of State? The Biwater case was dealt with badly by the OFT, but the Secretary of State and the Government office for the east midlands had enough material to justify using their power to reject the OFT recommendation and make a reference possible.

Ken Purchase: Does my hon. Friend accept that that is exactly my point?

Harry Barnes: Perhaps it takes me a while to achieve complete understanding, but now that I understand it, I appreciate my hon. Friend's point.

Tony McWalter: My hon. Friend has presented a powerful case about what should have happened at Biwater, but does he accept that Ministers of a certain political disposition, or OFT officers who share it, might decide that it is in the public interest to shut down an old pipeline firm and introduce spanking new pipes manufactured in Brazil? Simply because the public interest is incorporated in the provisions, it does not follow that it will necessarily redound to the benefit of trade unionists and others.

Harry Barnes: I entirely accept that. Indeed, that is precisely what occurred in the Biwater case. It is not just that a Conservative Government interpreted the case in a restrictive way and failed to listen to representations. This was a new Labour response, which I was quite annoyed about. The type of arguments that I would have used with a Conservative Government were certainly used with my own, to the extent that calls were made for the resignation of the then Secretary of State for Trade and Industry, who is now the Secretary of State for Transport, Local Government and the Regions. I made the same claims in relation to the Biwater issue, but I would not make them in connection with the position that he has adopted on the railways, which is a much more sensible response.
 I was saying that I am not alone in this matter. The amendments are not connected only with the workers who mobilised, organised, marched and demonstrated in Clay Cross. The community, including women's organisations and trade union organisations, went with them, and there was also a commitment by councils and others in the area. The provision needs to be in place so that it can be used in the right circumstances and when a particular response needs to be made. Other Biwater-type cases might emerge. 
 As a result of my feelings on this issue, I contacted the General Secretary of the TUC, John Monks, and a number of other union leaders. In return, I received correspondence from the TUC, which I am permitted to use here. It relates to an exchange of views between John Monks and the Secretary of State for Trade and Industry. 
 In a letter of 20 March, John Monks wrote to the Secretary of State: 
''As you will be aware, the TUC has consistently argued that mergers and takeovers should be regulated to operate in the public interest, and that employment effects should be taken into account alongside the impact on competition when judging a bid . . . we believe that as it stands the legislation risks producing some perverse and politically damaging decisions.''
 Mr. Monks suggests an avenue that might accommodate the provision, which might emerge under a later amendment. 
 The response from the Secretary of State, dated 9 April, states: 
''The system will . . . contain a fallback option to consider other public interest matters before a case is referred, although in reality the Government does not envisage that new public interest gateways will be created except in extremely rare circumstances.''
 That comment is a little disingenuous. Clause 56 specifically refers only to national security, although it opens up the possibility of Parliament adding something else on occasion. However, the battle to get the provision to be anything like what I am suggesting would be very difficult to win. The Secretary of State goes on to say: 
''I understand that mergers do have a wide impact beyond competition concerns, but the focus of our merger regime is to achieve long term economic efficiency.''
 I presented the amendments as probing, but I want to stress the seriousness of my point. I do not expect a favourable response from my hon. Friend the Under-Secretary now. I will hold on and hope that suitable measures can be introduced on Report or in the House of Lords. I certainly hope that the serious concern that I have expressed will be fully considered and that the principles in the Bill can accommodate it. If there is a good economic and social argument for a firm to continue operating, people should not have to face the type of situation that we faced locally. It should at least be possible to put in place measures to avoid the dramatic collapse of industries.

Vincent Cable: I welcome this discussion. The selection of amendments has created some problems for us. Two groups of amendments appear to come from exactly opposite points of view. The important public interest debate is couched in terms of a very general clause, whereas the amendments, which explained what public interest meant, have not been selected. Obviously we have to operate within that framework.
 I do not want to disappoint the hon. Member for Eastbourne over the eclectic thinking of the Liberal Democrats. I see considerable merits in both sets of amendments. The hon. Gentleman has a somewhat chequered history in terms of his European credentials, but that does not make his arguments invalid. Indeed, they were very strong. The fact that the hon. Member for North-East Derbyshire (Mr. Barnes) felt it necessary to get the signatures of the hon. Members for Glasgow, Kelvin (Mr. Galloway) and for Bolsover (Mr. Skinner) does not invalidate his amendment either. It has a lot of common sense behind it.

Harry Barnes: My hon. Friend the Member for Bolsover lived in Clay Cross for a long time. He is a prominent figure in the area.

Vincent Cable: I was going to say that if he had asked for my signature I would have happily given it to him.

Melanie Johnson: May we clarify whether the hon. Gentleman would have put his name to the Conservative amendments?

Vincent Cable: I would have, because both sets of amendments seem sensible, although they come from different points of view. They are not incompatible. Let me take the dominance point first. The hon. Member for Eastbourne was right.

Nigel Waterson: Having established the Liberal Democrats' position beyond peradventure, has the
 hon. Gentleman perhaps been reading his own campaign document, leaked to the papers today, which advises Liberal Democrats to ''be wicked'' and to ''act shamelessly''?

Vincent Cable: This has nothing to do with lack of shame. It stems from our ability to try to understand other people's point of view and draw strength from different standpoints. I hope that members of the Committee are equally broad- minded.
 Let me take each of the amendments in turn. The hon. Member for Eastbourne's amendment relates to the potential incompatibility between British merger legislation and that of the European Union. He made the argument well and I do not need to develop it in detail. It could be said, and this is probably the Government's view, that we must apply the principles of subsidiarity. There are contexts where the principles of subsidiarity apply, but I am almost certain that this is not one of them. We are talking about fundamentally incompatible approaches in terms of law for companies that in many cases will be on the borderline of European and British competition law. It could create serious problems. 
 On Tuesday, when we were debating consumer protection, the Under-Secretary intervened to remind us that the European Commission had produced a Green Paper on consumer protection. She reminded us of the dangers of British practice getting too far out of line with the EU, precisely because the European Commission was developing its own set of rules within the single market with which we had to be compatible.

Melanie Johnson: To a degree, the hon. Gentleman is right. I was making a wider point about the fact that there was a general duty to trade in a number of member states, but the interpretation of that could be different. We could end up with different views. It is not a parallel situation.

Vincent Cable: I thank the Under-Secretary for that clarification. We need to be careful that rules and principles do not diverge too greatly, whether they relate to consumer protection, cartel legislation or mergers.

Mark Field: The hon. Gentleman rightly introduces the issue of subsidiarity. I should not like to agree with everything that the Under-Secretary says, but surely a stronger argument suggests that, at consumer level, there is more of a push towards, and a greater burden placed on, the idea of subsidiarity. However, at corporate level, particularly in relation to mergers, I agree with my hon. Friend the Member for Eastbourne. It makes sense in an increasingly interdependent world—in which we have strong trading links with the European Union—to move towards making certain decisions at an EU rather than a subsidiary level.

Vincent Cable: Yes, the hon. Gentleman is right, and he makes his point well. The constantly deepening trade and investment relations between European countries in the single market mean that the overlap between British and European corporate behaviour is becoming increasingly fuzzy. If we join the single currency—which may not happen soon, but could happen in the lifetime of the legislation—it will deepen
 commercial relationships and make the overlap still less clear. We need to be careful about setting a wholly different test and set of principles for British, as opposed to European, legislation. I fully support the amendment.
 I should like to say a few words in support of the hon. Member for North-East Derbyshire. What he said was essentially right, and he began from the correct position. He said that we must be careful not to throw out the baby of democratic accountability with the bathwater of political interference. I have said on several occasions that we do not want direct daily ministerial or political intervention in competition policy decisions, because Ministers will always be tempted to use that ability for party political reasons, or to favour special interests. The Government have accepted that, and we are heading in the direction of greater independence for competition authorities. 
 The hon. Member for North-East Derbyshire was absolutely right that many legitimate political considerations must be borne in mind when merger decisions are made, and they are not simply those relating to competition. A merger on the borderline of proof—on that only just passed the competition test, say—could have major implications concerning redundancies in a part of the country where there is high unemployment, so it would be legitimate to take a political angle on that decision. Currently, a Minister can intervene to take such a factor into account, but it is difficult to see how, if the Bill is enacted, the OFT would be entitled to do the same. We need a provision that makes that possible. 
 I shall offer a hypothetical example. Britain might produce a British Bill Gates, who creates a company with vast technological potential to benefit this country. As a result of expansion, it could run into trouble with the competition authorities and fail the competition test. However, the legislation makes no provision for the competition authorities to consider the long-term national interests that would arise from such a successful venture.

Tony McWalter: The hon. Gentleman is considering the protection of employment, but perhaps the issue is not that of a foreign company coming in and undercutting us on shady grounds. What if we protected employment—say in a pipe company in Clay Cross that produced inferior pipes to a company in Wales—on the ground that lots of jobs would be lost in Derbyshire? All things being equal, is it not fair to permit the company that is doing well to prosper, and to let the one that cannot cope with the market to be driven out of business?

Vincent Cable: The hon. Gentleman is right, if I understood him. I think that he was talking about competition within the UK rather than making a case for protection through trade. He is right that the competitive process would be very important in that sense, but none the less it would be useful and important to have competition authorities that at least understood the employment implications and wider social costs of a decision.

Harry Barnes: The argument also applies to competition in the UK. There is not only the hypothetical case in which the plant in Wales is more productive than the plant in Derbyshire, but what actually happened: the plant in Derbyshire reached a higher level of production and used its technology better than its competitors.

Vincent Cable: I do not want to go too far into the matter of that particular plant in Derbyshire, which has had a reasonable airing; the principle is right.
 I shall cite one or two examples of recent legislation to which the same arguments applied but the Government did not listen and landed themselves in difficulties as a result. In the previous Parliament, I was involved with three pieces of legislation in which that exact issue arose. The Utilities Bill was generally a good piece of legislation which, since it has been enacted, has increased competition in the utilities field. The Government insisted that it was essential that a competitive test replaced regulation for electricity, gas and the rest. No one questioned the general thrust of that policy, but during proceedings on the Bill we considered what would happen if a broader public interest, such as the environment, were involved. How could the regulator be required to take that into account? The Government said that they wanted to keep the simple, basic principle of a competitive test because there was no need to consider the public interest. Subsequently, as Members of all parties feared, that principle did not work. With the introduction of the new electricity trading arrangements, competition has ruled, but the combined heat and power industry—the renewables industry—has effectively been driven out of business. 
 Some of us have been along to the regulator and said, ''Surely you can make some allowance for long-term environmental sustainability.'' He has said, ''No. You people in Parliament have passed legislation that tells me, as a regulator, that my only responsibility is to take account of competition. I am sorry, but you are an MP, you have passed that legislation and I cannot have a conversation with you about it—end of problem.'' The Government have landed themselves with the sacrifice of a major public interest—environmental accountability—due to lack of thought during the legislative phase about how to capture the public interest.

Andrew Lansley: I am afraid that the hon. Gentleman has ventured into a subject for which I do not have my bits of paper. In the past few days, however, I recall seeing a piece of paper from the Director General of Ofgem—the Office of Gas and Electricity Markets—that expressed his view that in the course of implementing the new electricity trading arrangements and having achieved consumer benefits through substantial reductions in price, he was hoping to address the adverse consequences for combined heat and power by further revision of NETA. The matter is not quite as simple as the hon. Gentleman states.

Vincent Cable: The hon. Gentleman is right that there have been major consumer benefits, and to that extent the thrust of the legislation was right. However, my
 understanding—perhaps the hon. Gentleman has more advanced information—is that the legislation prevents the Director General of Ofgem taking account of those wider factors. If I am wrong, I am happy to be corrected.
 Another example, about which the Under-Secretary knows very well, was the Financial Services and Markets Bill. I tried to introduce a clause into that legislation to take account of the social aspects of financial services provision. The Government said that that was not necessary because the aim was too vague, and that we should stick to giving the Financial Services Authority a clear economic mandate. On Tuesday, the reports on social exclusion and the role of the banking sector in the provision of basic bank accounts revealed a complete failure by the banking sector voluntarily to come up with the kind of improvements that I and other hon. Members had sought to have written into the legislation. The same thing has happened with Post Office legislation and the Post Office regulator.

Melanie Johnson: I should like to comment on some of the hon. Gentleman's remarks about the Financial Services and Markets Act 2000. First, it is not right to characterise the objectives of the Financial Services Authority as economic. That is too broad a term. Secondly, the FSA's consumer panel is out there arguing the case on basic bank accounts and how the industry should be taking them up more. Is that not a vindication of the structures that were put in place around the FSA?

Vincent Cable: The consumer panel is indeed arguing vehemently, and I referred to its report. The consumer panel made it very clear that the banking sector had totally failed to meet any test of social responsibility. I do not want to go down any of those byways in great details, but I have cited them as examples of the danger of passing legislation that does not give extremely powerful regulators, who have very limited political accountability, any formal responsibility for public interest.
 Although there is a temptation to characterise the amendments of the hon. Member for North-East Derbyshire as a wild fling from the far left, there is a sensible and important democratic principle behind them, with which all parties in the House, if they stretched their minds a little, should have some sympathy. Although the language might not be right and work needs to be done on them, the amendments would repay revisiting and sympathetic discussion.

Andrew Lansley: I do not want to add much on amendment No. 211, which was moved by my hon. Friend the Member for Eastbourne, because he spoke admirably on it. I want to comment a little on the amendments of the hon. Member for North-East Derbyshire and to ask something about them. Committee members clearly cannot know the Biwater case as well as the hon. Gentleman, but his argument did not leave me with the conclusion that it was therefore necessarily right to reintroduce the public interest test and that that would remedy the problems that he envisages.
 If it is the hon. Gentleman's contention that, regardless of the effects on competition and, by extension, on consumers, the jobs of the workers at the Biwater plant should have been protected and retained, he should say so. He did not quite say that. If it is his contention that UK production should in such circumstances be protected against the possibility of sourcing from imported, overseas sources rather than UK sources, he should say so. He did not quite say that either. 
 Essentially, what I understood the hon. Gentleman to suggest—he may be right for all I know—was that the competition test had not been properly applied in that case and that the benefits of competition were not flowing through. He suggested that a large, perhaps even dominant, supplier—we shall come to dominance in a moment—was able, by virtue of the merger and in ways not disclosed in the original decision, to reduce the sources of supply in the United Kingdom and that, hence, there was a substantial lessening of competition. On the face of it, he might as well have argued that the substantial lessening of competition test would have been perfectly appropriate in that case, had it been applied accurately.

Harry Barnes: There might need to be a combination of factors. A firm could simply fail to meet the competition criteria. However, there are other public interest factors such as employment, the distribution of industry in an area and export markets, which switch the matter in the other direction so that there are grounds for the matter to be referred to the Competition Commission. I grant that I was arguing that competition grounds alone were enough for a reference to the Competition Commission, but the addition of the other considerations could have tipped the decision over.

Andrew Lansley: I am grateful to the hon. Gentleman. His argument that those further factors should be taken into account is what I imagined. His case does not illustrate the argument well. I would contend that if a substantial lessening of competition test is properly applied, and proper account of consumer benefits over a reasonable period is taken, the test will have substantial regard to the location of sources of supply, and their number and efficiency. The way in which a large supply can create a position of dominance may well outweigh that.
 If the competition test in a particular instance of the sort described by the hon. Gentleman is properly applied, and if competition is sustained and there is no substantial reduction of competition as a consequence, is it the responsibility of the legislation to protect employment and allocate industry around the country, protecting United Kingdom production against overseas production at the expense of competition? That is what we would be doing, because if the merger does not reduce competition, it will have the effect of promoting it. The competitive intensity of industry means that management is not able to rest behind protective barriers. Under such circumstances, should we allow it to? My contention is that we should not. 
 All the evidence is that if we try to protect jobs through legislative measures, we protect them in the short run, but destroy them—and probably more—in 
 the long run. To protect British industry by setting up barriers to mergers would be contrary not only to the single market, but to our long-term economic interests. If we go down the path of distributing business throughout the country in recognition of a regional development policy that is borne not of spatial incentives and infrastructure, but of efforts to try to preserve jobs in a particular location rather than promote competition and see where jobs go as a result, we will destroy those jobs in the long run. Unfortunately, that is the lesson that experience of industrial policy and protectionist policy has always taught us. 
 As the hon. Member for Twickenham suggested, we have to look to both planks of the argument. If we go down the road of a public interest test in the terms proposed by the hon. Member for North-East Derbyshire, we would explicitly bring back into the equation tests that are anti-competitive, which in the long run are likely to lead to substantial consumer detriment because they will undermine the long-term competitiveness of British industry and competitive intensity in our marketplace.

Alistair Carmichael: I am not without sympathy for what the hon. Gentleman is saying, particularly in relation to manufacturing, but he must surely accept that an awful lot more falls under the clause than merely manufacturing. In particular, the provision of services might be involved.
 The issue that springs to my mind is the provision of regional air services, which is of great importance to people in my neck of the woods. British Airways, for example, may try to merge with small, individual carriers that are in competition with it regionally. If merely left to competition, that would leave people living in communities such as those that I represent substantially disadvantaged, as they would be left without any competition on the service. Without the introduction of a public interest element, there would be no means by which that could be considered by the Competition Commission.

Andrew Lansley: I am slightly surprised by the hon. Gentleman's argument, because he seems to be interpreting the competition test as a market test. The test is not what unrestrained markets would deliver. Unrestrained markets may deliver concentration of industry, or oligopoly or monopoly. Our purpose is to deliver competition, which is not the automatic outcome of unrestrained markets.
 Markets must operate within a highly pro-competitive legal framework. I am not qualified to debate the case of regional air services. However, on the basis of the case that the hon. Gentleman puts, a reduction in competition to the disadvantage of his constituents as a result of that hypothetical merger activity would be a perfectly valid reason to present it as a substantial lessening of competition without any compensating consumer benefits. 
 If we go down the path of reintroducing a public interest test, we create unpredictability. It is not just a 
 question of exports, spatial allocation of industry or employment prospects. As my hon. Friend the Member for Eastbourne suggested, if we were to discuss clause stand part later, we might get on to a whole range of issues that have previously bedevilled the application of competition policy, even where the primacy of competition has been asserted. All those things have been available and have often been cited as reasons to subvert what would actually be a pro-competitive decision. 
 I entirely take my hon. Friend's point, and that was why I offered my ha'p'orth on the Competition Act 1998. I found it interesting. It was true in relation to the cartel offence, and it is true in this instance. In 1998, the Government took the view that for reasons of predictability—again—and consistency, it was entirely desirable that the structure of UK law should wholly reflect the structure of European Community law. That has a range of benefits, not least that even though one might be reasonably confident that one's activity is regulated by UK competition authorities, UK competition authorities in making decisions must have regard to EC decisions. In the case against NAPP Pharmaceuticals, it is clear that the competition appeal tribunal carefully considered precedent and case law from the European Court of Justice in order to arrive at its decision on a UK case under the chapter II prohibition and the Competition Act. 
 The issue then becomes whether the dominance test is better because it is the same as the European Community's test and whether we should again pursue consistency. There are good arguments to say that we should. It is not simply that some mergers may not necessarily be UK or European Community mergers, but that there may be a degree of uncertainty about precisely where mergers are to be handled. If we have a different regime in this country from that which applies at EC level, there may be perverse incentives for companies to create merger situations that are dealt with by the Commission rather than by UK competition authorities, and that would not necessarily be in the UK interest. 
 If I recollect correctly—the Under-Secretary will, no doubt, correct me if I am wrong—the acquisition of London Electricity by Electricité de France was handled by the European Commission, under its competition and merger regime, and was not patriated to the United Kingdom, although such patriation was sought. There are reasons to suppose that we might have looked at that merger and, if not necessarily come to a different conclusion, applied tests that were not precisely the same. 
 There is a certain undesirability in a distinct regime that draws businesses to seek to be considered by the Commission even in mainly or substantially UK merger cases. It would be far better for us to go down the path of having a greater number of substantially UK merger cases considered by UK competition authorities. That is much more likely to happen if we operate directly under a regime that reflects the EC merger regime. 
 The Under-Secretary might tell us that the European Community's merger regime may change, 
 but I imagine that she does not know precisely how that will happen. There is a small argument for going for the stronger, more pro-competitive regime in the UK and hoping to draw the European Community with us so that, over time, the regimes might become consistent. Unfortunately, I do not think that the Under-Secretary is in a position to offer that at the moment, although I shall be delighted if she can. 
 My final argument is this: leaving aside the problems, the discontinuity and the fact that European Community decisions and interpretations that might be applied here might not directly mesh with UK law and so lead to some conflict, and leaving aside the fact that companies might be led to go to the European competition authorities more often than would otherwise be the case, should we go down the path of a substantial lessening of competition test here anyway, for the simple reason that it is a stronger test? Even though we are in a single market, if we, the UK, can find ways, compatible with our treaty obligations, of creating greater competitive intensity in the United Kingdom than that in other European jurisdictions, should we not do so? 
 The Under-Secretary might reach into the Department's collective memory and say that, although the Government have been inconsistent, I too argued from time to time in 1998 for a regime that was a little tougher, a little clearer and a little more suited to our circumstances. I did do that. On balance, I would probably say the same again, but before I conclude, I shall give way to my hon. Friend the Member for Cities of London and Westminster, who is manoeuvring in front of me.

Mark Field: I assure my hon. Friend that I was just turning round to listen to him and all that he had to say.
 I am slightly intrigued by my hon. Friend's feeling that the substantial lessening of competition test is by 
 necessity more competition-friendly than the dominant position test, and would be interested in him exploring that a little. Does he not agree that there might be instances in which the dominant position test is stronger for competition, especially in markets where there is one very large player and some smaller players? If any such strong player made a merger in the European arena, although, given that player's dominance, that merger might not necessarily fall foul of a substantial lessening of competition test, it would immediately become subject to a dominant position test.

Andrew Lansley: I am grateful to my hon. Friend. It is sometimes difficult to think such things through theoretically in the absence of particular cases, and I cannot immediately think of a particular case to illustrate his point. However, if he was referring to circumstances in which a dominant participant in the market were seeking to take over any of a number of smaller companies operating in the same market, although the dominance test would clearly apply directly, I think that substantial lessening of competition would also be relevant. Substantial does not necessarily mean large in scale in relation to the market. If it is perfectly clear that a market has less than good competitive features already, the further reduction of what competition there is in that marketplace would reasonably be interpreted as a substantial lessening of competition. It would be very difficult for a dominant company seeking to extend its dominance to argue that that was not the case. However, I am glad that my hon. Friend has prompted me to pursue that matter—
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.